The Federal Reserve opened the possibility of lowering a key short-term interest rate in the coming months but provided no timing for such a move. The central bank faces risks of rising unemployment and stubbornly high inflation, creating a conflict between cutting rates to support hiring and keeping rates restrictive to curb inflation. Policy was described as sitting in restrictive territory, and the baseline outlook plus shifting risks may warrant an adjustment, but decisions will be data-dependent and evaluated carefully across forthcoming jobs and inflation reports. Financial markets and political leaders may be frustrated by the lack of clearer guidance.
In a high-profile speech that will be closely watched at the White House and on Wall Street, Powell said that there are risks of both rising unemployment and stubbornly higher inflation. That puts the Fed in a tough spot, because it would typically cut its short-term rate to boost hiring, while keeping it high - or raising it - to fight inflation.
'The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,' Powell said in prepared remarks. That suggests the Fed will continue to evaluate jobs and inflation data as it decides whether to cut rates, including at its next meeting Sept. 16-17. 'Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,' he added, a more direct sign that Powell is considering a rate cut than he has made in previous comments.
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